Tag Archives: economics

UPDATE: Afonso responded to this post here. My rebuttal is post as a comment on his blog rather than here (he seems to care more about getting clicks than I do); a direct link to my comment is here.

There’s a blog post by Alexandre Afonso (London School of Economics and Political Science) that proposes the rather odd notion that academia is a like a drug gang. The argument is based on a narrow and incomplete perspective of what drives academics that seems rooted in a simplistic worldview where everything is related only via economics and politics. It’s a case of the blind men and the elephant.

What I see here is a series of problems, caused by business and political concerns, that that created the problems both that led to SunTech’s bankruptcy and that will impact the employees and investors, and indeed, the entire global economy.

Last year, I wrote a post about the abominable notion of endless growth. The point of that post was to indicate how absolutely delusional it is to think that things like the economy will always grow, and that the bigger a thing gets the more catastrophic the failure when it finally fails.

Today, nearly a year later, I found a blog post – the first on the wonderful Do The Math blog – dating back to just a few days before my own, and that covered the same topic, the absurdity of continued growth, but from a strictly mathematical point of view. It’s a great post that shows that – at our current rate of growth of energy consumption – we will become a galaxy-consuming civilization in a mere 2,500 years.

I tip my hate to Tom Murphy’s excellent blog. If you’ve not subscribed to Do The Math, you’re missing something special.

I hate it when politics gets in the way of technology and common sense.

In Weston, a community in the Greater Toronto Area, a new mass transit railway is being installed by GO Transit. Generally, I approve of the expansion of public transit, but in this particular case, there are a number of problems that are causing substantial grief for the residents of the area and make me wonder if this project shouldn’t be stopped – at least temporarily – until the problems can be solved.

To install the railway, many structural elements are being pile-driven into the ground. Pile-driving is a noisy activity, generating noise at as much as 135 dB, which is somewhere between jackhammer and a jet engine. And there’s a lot of piles to drive. Since this project has just recently started, now is the time to make sure that the right technology has been chosen for the job.

There is a “blanket” that is supposed to be installed around the head of the pile-driver, and that can lower the source sound by 15 dB. (Remember that doubling how loud a noise is adds only 10 dB to the noise rating, so 140 dB is twice as loud as 130 dB.) But it apparently takes 30-40 minutes to install and to remove, and this seems to be unacceptable to GO. To confuse matters even more, the installer (GO) is a provincial entity, and the land on which the work is being done is federal land. GO is saying it’s exempt, therefore, from City of Toronto noise regulations (which seem to be violated quite seriously in this case).

Now, it happens that there’s lots of ways to mitigate the noise. One way would just be to say: Follow the rules, use the existent blanket, or we’ll sue. There are also sound dampening walls, but it seems they are not exactly positioned in ideal locations. Then there’s a variety of other technologies, one of which is outlined in this paper, that show marked noise reductions.

It’s clear that the noise is harmful, and it’s clear that there are ways to lessen the noise. So what’s the problem?

Part of the answer may lie in papers like this one, the abstract of which I include verbatim:

This paper describes how the Florida Department of Transportation, (FDOT), District II, as a result of various ongoing legal issues with the City of Jacksonville, was abruptly forced to meet compliance within the City of Jacksonville Noise Ordinance program for all ongoing construction projects within the city limits. Specifically FDOT was required to meet the Jacksonville Environmental Protection Board – Rule 4.0 Noise Pollution Control (Section 4.208 Construction or Maintenance Projects). This section of the noise ordinance limits construction related noise levels to 65 dBA when measured at the closest adjacent residential land use property line. Further, the noise ordinance specifically required that all compliance noise monitoring was to be conducted with a real time octave band analyzer. Due to the close proximity of residential land uses along both the east and west sides of Saint Johns Bluff Road, along with the significant noise levels associated with pile driving operations, the FDOT was forced to develop a reasonable and feasible noise abatement technique that would allow the timely completion of the pile driving phase of the roadway construction project. Failure to comply with the local jurisdiction noise ordinance would result in potential project delays until compliance was demonstrated to the City of Jacksonville. The enforcement of this local jurisdiction noise ordinance had wide spread implications ranging from potential project delays on all roadway work within the city limits to increased traffic congestion on roadway projects under construction. Further, all roadway construction projects previously approved by the FDOT had to consider an increased project cost that would specifically include the necessary noise abatement techniques to meet the City of Jacksonville Noise Ordinance for Construction Projects.

Notice the use of language here: FDOT was abruptly forced to obey the law, forced to develop a “reasonable and feasible” way to lessen the noise, and that failure to comply would delay the project, cause increased traffic, and increased cost of future projects. No where does this abstract mention the health impact of this kind of noise, and the obligation of FDOT to the people of Florida. And shouldn’t we expect governments to come up with “reasonable” solutions without being forced to do so? If this attitude is pervasive in the public works world, it doesn’t surprise me at all that we’re having problems in Weston.

So, the problem isn’t technological: there are ways to lower the intensity of the sound. The problem, it seems to me, is purely political. There are three levels of government involved here (which is ‘way too many cooks in this kitchen), and they’re not playing fair.

This is one helluva design problem because of the constraints on the system, namely that every level of government is trying to do the least amount of work, and they’re all working for different stakeholder groups and therefore have different (i.e. conflicting) goals. The City of Toronto is interested in the local residents, but they lack the funding to implement the platinum-level solution themselves – indeed, it likely lacks the funding to try to force the others to satisfy the residents. GO Transit (the Province of Ontario) has to keep costs severely in check or the rest of the province will start thinking that Toronto is getting most of the available funding, which is politically bad. The Feds don’t give a tinker’s cuss about this whole matter, because public transit is not something that Ottawa lobbyists (e.g. the auto sector, the petroleum sector, the insurance sector) care about.

I don’t have a feasible solution here, because I refuse to offer a political solution. Since politics is a purely human construct, it can never outweigh other, real factors, like the health of individuals. That politics does influence this situation at all scares me.

The correct answer is that the primary stakeholders are the City of Toronto and its residents. They stand to gain the most from the new GO line, and they stand to suffer the most if and when things go wrong. So the Province and the Feds should give control of the entire project to the City on a cost recovery basis: As the City identifies costs, the other levels of government just hand over the money to get it done. If the project ends up costing more than it should have, then too bad – they’ll just have to cough up more cash.

Stephen Harper’s contempt for Canada shines through in the 2009 Federal Conservative Budget.

At the end of 2008, there was a huge brouhaha when Stephen Harper’s cronies presented a gut-wrenchingly useless fiscal update. The opposition parties formed a coalition designed to bring Harper’s government down – which is a perfectly legal manoeuvre. Harper then did what any spoiled child does when the game isn’t going his way – he took his ball and went home (otherwise known as “proroguing parliament“), promising to generate a new-and-improved budget by the end of January.

The new budget was rolled out on the 27th. You can just google “canada budget 2009” if you want to read the gory details. I’m not about to waste bandwidth summarizing it here. I do want to list, however, a few of the things that are wrong with it. This list is more than sufficient, as far as I’m concerned, to condemn the budget in its entirety.

It’s not enough. Even though the budget is being advertised as being intended to address the current hard economic times, it’s no where near the kind of budget that other nations have been mounting. According to The Star, the actual stimulus amounts to 1.3% of our GDP, which is “…clearly in the bottom ranks among major industrial nations’ response to the recession, and barely two-thirds of the 2 per cent advocated by the International Monetary Fund as an appropriate fiscal response.” So Harper lacks the courage – the stones – to actually try to address our economic troubles.

The budget is unprincipled. Harper said that conservatives must be pragmatic, not ideological. Pragmatism can be useful, but it must be grounded in ideology. Practicality without underlying ideals is activity without a moral centre. Ideals are essential, even if they’re unattainable. They point the way by which we can improve. If we’re “here” and our ideal is “over there” then we can measure whether we’re improving things by gauging whether we’re getting closer to the ideal. Ideals – captured in an ideology – are the principles that guide pragmatic decision-making. So if Harper says ideology is unnecessary, then it follows that he must be unprincipled. And since his actions run counter to this perfectly rational argument, Harper is also irrational.

Corporate bailouts cater to corrupt businesses. The budget includes cash infusions for struggling businesses. But there are no real constraints on the businesses as a result of the help. These companies are in financial trouble because of their well-documented, highly irresponsible practises (look at how disproportinate the compensation is for high level executives in the American auto industry – see my post about the salary pyramid). Basically, these bailouts – let’s call them what they really are – amount to federal permission for companies to keep screwing up. This does no one any good. Sure, in the near term, bailouts will help keep workers employed. But the underlying causes – the corporate rot festering in many big corporations – will continue to grow. These companies will not change the way they operate in any substantive way, so the bottom will eventually fall out, and everyone will be in much worse shape. As they say: an ounce of prevention is worth a pound of cure.

Instead of giving dysfunctional corporations billions of dollars for the sake of keeping people employed in the near term, the government should invest the money to retrain those workers so they can get other jobs, improve Employment Insurance to cover them while they’re finding those jobs, and let the sick companies die. Indeed, the government should provide “palliative care” by ensuring a controlled but definitely terminal descent into corporate oblivion. Propping up failing companies is a band-aid solution that will only make matters worse in the long run. Letting them collapse now will cause far less damage. Given this, it is clear to me that Harper can’t see past the end of his fiscal nose.

Micromanagement is always bad. The budget includes puny, targeted tax breaks – for instance, you can get up to $1,300 back for renovating your home. $1,300? That’s not enough to re-do a bathtub, let alone a bathroom. My wife and I expect to do some serious renovations soon, and $1,300 won’t be enough to cover the GST! If you’re going to do any serious renovation, $1,300 is a drop in the bucket. If the point of this part of the budget is to stimulate spending, it’s an abject failure because it is a negligible amount compared to the costs of any reasonable renovation work.

It is also far too specific. Why limit this tax break only to home renovations? What lobby group got to Harper and convinced him to toss this little biscuit their way? Why not give single mothers $1,300 to buy food and clothes for their children? Or $1,300 free public transit for the working poor? There’s a thousand ways to better direct this money. What Harper is doing here is micromanaging people’s lives…. “You want a tax break? You have to do exactly what I say!” He’s interfering with our lives; he’s trying to have us live according to what he and his cronies think is best for us.

Too much red tape. Much of the funding allocated to cities in the budget is “by application;” that is, cities will have to fill out tonnes of paperwork and undergo protracted approval processes to get money, even for projects that have already been approved at all levels of government. Toronto’s Mayor, David Miller, an indefatigable defender of cities’ needs, had discussed this long before the budget was announced. (That is, Harper knew very well what the cities needed when he was assembling the budget. He just chose to ignore it.) Mayor Miller has made it clear that there are many essential projects that are ready to start immediately, except for the necessary funding. The federal budget should have contained direct payments to the cities to let those essential projects start at once.

Instead, Harper’s control-mongering has resulted in a process that requires the cities to apply for and justify the need for funding, information that was already provided to the Feds in the course of getting all the necessary approvals. This means many projects that could start the day after the budget is approved, will be delayed by upwards of two years.

In the meantime, Toronto – and the other big Canadian cities – will suffer.

Continued neglect of public transit. While the budget includes a great deal of infrastructure money, not enough of it is dedicated to urban public transit. Most transportation-based pollution is coming from cities, yet the infrastructure money is so thinly distributed across the country that no province or group will get enough to make any significant progress to combat it.

The fact is that cities are the economic, cultural, and technological centres of our civilization. Outstanding public transit is an essential feature of any outstanding urban centre. Look across the world and this will be immediately apparent. Toronto could be a world-class city, but until the Feds recognize this and give Toronto (and Vancouver and Montreal) the real resources they need, Canada’s cities will always be second-rate, compared to London, Rome, Paris, Tokyo….

Perhaps this is all because Harper’s main supporters are ignorant yahoos that generally live outside of the intellectually, socially, and culturally enlightened urban areas. Or perhaps it’s just that Harper is stupid. The reason doesn’t matter; the fact remains that this budget is utterly inadequate for the heart of Canada’s society – it’s cities.

It’s a liberal budget. Well, not really; but it’s close. The budget implications arising from Harper’s original 2008 fiscal update are much more in keeping with Conservative dogma: focus on corporate wealth instead of individual health; lower taxes at the expense of government programs; rigidly maintain the status quo; try to reverse progress (e.g. interfering with continued efforts to further gender equality).

Instead, what we got in 2009 was clearly a budget that responded to the liberal threat to bring down the Conservative government (by way of a coalition), by adopting certain quasi-liberal budgetary features. It was a well-played political trick: the liberals can’t really oppose the budget without opposing their own principles.

Whether the budget really is a liberal one or not is not the point.

The point is this: Harper betrayed his own Conservative philosophy for the sake of keeping power. That is, Stephen Harper is such a power-mongering coward that he could not stick to his principles and produce a proper Conservative-style budget. Instead, he was a traitor to his own ideology for the sake of remaining Prime Minister.

One of the big, current news items is the notion of bailing out the Big 3 North American automakers. But there are certain characteristics of the Big 3 that make me wonder whether we’re doing more harm than good by just giving them money. I’d accumulated some data about the relative performance of the Big 3 versus other popular automakers, but I couldn’t figure out how to present what little data I had in a meaningful way.

One of the tidbits of information I had was that the CEO’s of Japanese companies make about 10 times the salary of their company’s lowest level worker, whereas this ratio is far higher in the USA.

It turns out that it’s not that simple. A quick check of Google suggests there’s no clear answer, but some definite trends.

According the the google excerpt of a questia report from 1995, the median CEO in a survey conducted by Business Week earned more than 94 times what a factory worker earned, whereas the ratio in Japan was between 20 and 30.

In 2005, alternet.org reported that the ratios were 500 in USA, 45 in Mexico, 25 in England, and 10 in Japan. (Although I failed to find any evidence of background research on this.)

Michael Moore’s blog reports (in October 2008) that the ratios as over 400 for USA, 28 in Britain (which is not the same as England), and 17 in Japan.

In 2000, bnet reported that the ratios were 476 in USA, 13 in Germany, and 11 in Japan.

…you get the picture.

Anyways, I was wondering about how CEO salary compared to the total corporate costs, and thinking this obviously related to the number of employees. And then suddenly the notion of the pyramid popped into my head.

It was an unconscious cognitive act that generated the idea – that’s why it seemed to appear fully formed in my mind – so I can’t positively say how it came to me. But I strongly suspect it was a case of analogical reasoning (which I believe strongly is the key cognitive act in designing things). I’m well-aware of the visualization of the corporate pyramid, with the CEO at the apex and all the lowly workers ranged out at base. The height of the pyramid represents the level of an employee in the hierarchy. One just has to change the vertical axis to get a salary pyramid.

If one uses the horizontal axis to represent the number of employees at a given salary level, then one can construct pyramid shapes that model the distribution of compensation through the company in a simple, systems-wide way.

Figure 1: Salary pyramids for
Toyota (red) and GM (blue).

It then occurred to me that the resulting shapes might only be pyramidoid, and that the shapes themselves might be interesting. Consider the following examples.

Figure 1 show the rather absurd salary pyramids for Toyota (in red) and GM (in blue). The figures used to build these pyramids are as follows. GM has 266,000 employees, average total worker compensation of $75/hr, and a CEO salary ratio of about 400. Toyota has about 316,000 employees, average total worker compensation of $45/hr, and a CEO salary ratio of 15.

Note that the vertical axis is uniform for both GM and Toyota; that is, the difference in the height of the pyramids is accurate to the data. The total area of the pyramids is a representative measure of the total cost of all salary in the corporation. It should be clear that there’s definitely something very wrong at GM – considering that Toyota is doing just fine.

The bottoms of the two pyramids in Figure 1 are not at the same level, but at the scale shown here, the difference is not visible. Because of the interesting features that can you can capture in a pyramid, let’s make up a couple of companies with different characteristics and look at their pyramids. I’ve done this in Figure 2.

Figure 2: Some basic differences
between salary pyramids.

In Figure 2, we show two salary pyramids. The vertical axis is in units of currency (for salary) and the width is in units of “employees.” The wider the triangle, the more people are earning that corresponding salary.

The green triangle represents a company where the CEO salary ratio is relatively small; that company also has a relatively shallow hierarchy (assuming greater salary corresponds to higher level in the corporate structure) – i.e. it’s relatively light on middle management.

The yellow triangle has roughly the same area as the green one, but it represents a company with a worse paid workforce (lower base), a better paid CEO (the top of the triangle is quite high) and because the base is smaller but the triangle is taller, we can say with confidence that a greater fraction of salary cost goes to management (than for the company represented by the green triangle).

This means we can use salary pyramids to compare companies as well as looking for specific characteristics in single companies.

What is not represented accurately in Figure 1 is the shape of the sides of the pyramids. That’s why I call these shapes pyramidoid: the sides aren’t necessarily straight. Interestingly, the shape of the sides can possibly tell us interesting things too.

Figure 3: Two different kinds of
corporations: one with very little
middle management, and one with a lot of
middle management.

Figure 3 shows two pyramidoids. Since their bases are equally wide and have the same offset from the horizontal, we know they have the same size of equally paid workers. Since both shapes have the same height, we know the CEOs of both companies are paid the same with respect to their workers.

The pyramidoid on the left is quite skinny through the middle. Since width indicates number of employees at a given (vertical) salary level, this figure tells us that most employees make relatively little – or that only very few employees make more than the workers. Assuming that one can reasonably map low salary to workers and high salaries to executives, then this figure represents a company with a very light layer of middle management.

The pyramidoid on the right is rather fat. This says that there are, for most salary levels, more employees in (presumably) middle management than there are low-paid workers. Depending on the nature of the company, this could be a very serious problem. One interpretation would be that this company has more managers than workers. This may not make sense, but so few things these days do….

I don’t have any real data for an organization, to see what a real salary pyramid would look like – at least not right now. But I hope I’ve suggested that this very simple visualization can not only indicate important corporate characteristics, but also provide an easy way to compare corporations.

* I did try to google a few alternatives – like “compensation pyramid” – but couldn’t find anything that lined up with my idea. So, to the best of my knowledge, this is a new way to visualize certain features of corporate structures.

Harper lit a match under Canadian arts, and then the media turned it into a firestorm.

Consider this quote by Prime Minister Stephen Harper:

“I think when ordinary working people come home, turn on the TV and see a gala of a bunch of people at, you know, a rich gala all subsidized by taxpayers claiming their subsidies aren’t high enough, when they know those subsidies have actually gone up – I’m not sure that’s something that resonates with ordinary people.” (1)

All Harper is saying here is that people who use tax subsidies to host posh events shouldn’t be complaining that those subsidies are too low. It’s a variation of the “people in glass houses…” chestnut.

What Harper is suggesting is that the people who constitute the majority of Canada – the ordinary people – don’t appreciate the excess that he points out. Clearly, Harper hopes that “ordinary people” will side with him (read: vote for him). Harper can then legitimately cut back on spending for the arts.

The arts community naturally and justifiably got angry. But in doing so, they gave the media what they needed: two opposing sides on an issue. The media ran with this, blowing it out of all proportion by asking the “ordinary people” to comment on the value of the arts in Canadian culture. And you end up with ridiculous discussions like the ones at the Globe and Mail and Canoe.

It strikes me that Harper may have intended this all along. Make a relatively innocuous remark, knowing full well that it will spark a firestorm in the hands of the media. Harper gets what he wants (the marginalization of an absolutely essential but relatively small group of Canadians – artists) without getting his hands dirty.

Let’s go back to the source material, Harper’s words, and not worry so much about the ranting that followed.

First of all, the galas of which Harper speaks constitute only a negligible cost compared to all the other subsidized artistic activities in Canada. The amount of money saved by, say, cancelling these galas would not change the arts funding situation at all. So Harper is either misinformed (if he sincerely thinks the galas are a substantive source of “waste”), a poor debater (using one instance of a thing – posh galas – to condemn an entire category – artistic activities), devious (hoping people will misinterpret his words in a way that is advantageous to him), or stupid (he honestly thinks the arts aren’t needed in Canadian culture).

Unfortunately, none of these characteristics are those I would expect of a good Prime Minister.

Secondly, there’s an implication that artists are rich (based on their appearance at the posh galas). This has been picked up by Harper’s rivals too.

Jack Layton has rightly identified Harper’s remarks as “bizarre” – after all, we all know the cliché of the starving artist. It’s a cliché because it’s true. Stéphane Dion has stated the average artist only earns $23,000 a year. Not that Dion is the brightest crayon in the box, mind you, but he’s probably in the ballpark. In fact, only a tiny fraction of artists are rich – rather like the tiny fraction of people in the automotive sector that are rich (i.e. the CEOs). But we don’t see Harper lambasting Arturo S. Elias (President of GM Canada) – even though perhaps he should, considering GM’s recent corporate performance.

Thirdly, Harper sets up a false dichotomy: that if you’re “ordinary people,” then you’re against the arts. Not that he actually said this himself, but he has allowed the media to do his dirty work and create the dichotomy for him. After all, he hasn’t spoken up to correct the media, has he?

Harper then aligns himself with those “ordinary people.” Either he honestly believes he’s an ordinary person, or he just wants the ordinary people to be on his side (so that he’ll win the election).

The real problem here is that the “ordinary people” are wrong if they agree with Harper’s sentiment. They are wrong because even the most rudimentary study of history tells us that the arts are fundamental to the advancement of a culture. And if he honestly believes himself an ordinary person, then he’s admitting his own ignorance.

The arts matter because they are the spirit of a society. Science and philosophy are its brain; engineering and technology are its musculature; economics is its heart. And the arts are its spirit.

The arts are a mirror held up to us, so that we might better, more clearly see ourselves. The arts give voice to those of us who cannot find the words. The arts speak for us, and against us, and make us have to decide if we really like the way we are. The arts remind us of who we once were, and warn us of who we might someday become. The arts help us laugh and cry and enjoy the simple thrill of being emotionally engaged in our own existence.

And here’s a novel idea: why don’t we look at countries with comparable economic situations, and see how they fund the arts? We might learn a thing or two, don’t you think? Indeed, that’s exactly what Craig Offman suggested in his recent article in the National Post. He looked at a few countries in Europe (unquestionably the heart of Western culture and art) and discovered that the Netherlands is generally similar to Canada in economic terms, yet took a wonderfully different, positive, pro-active, and empowering approach to raising the quality of the arts. Could it be, Offman speculates, that a new approach to arts funding based on the Dutch model can address the economic issues and the artistic ones? We’ll never find out unless people like Harper actually undertake the study. And the way Harper acts, such an undertaking is just not on the books.

Without the arts, Canada would have no spirit. Without the arts, our society would be just a machine. And believe me, I know machines. It would appear that this is the kind of society that Stephen Harper wants, because he has done nothing to stop the firestorm on utterly misguided public debate on the matter.

The real question is: is this the kind of Prime Minister that you want?

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